The effective renewable energy policy that ARE promotes was invented (and then abandoned) in California in the early 1980s. Since then it has been picked up and successfully implemented in over 60 countries worldwide. It many countries this policy is simply called a ‘Feed-in tariff, ‘or ‘FIT’ for short. The name ‘feed-in tariff’ is a translation from the German description of the mechanism at the heart of this policy. In English the word ‘tariff’ means ‘rate’ and is commonly used in regulatory proceedings in North America. A ‘feed-in tariff’ is the rate paid to renewable energy producers for the energy they ‘feed into the grid.’ In North America the word ‘tariff’ can also mean ‘tax’. Consequently, the term ‘feed-in tariff’ can be problematic here. North Americans have come up with a variety of other terms for this one policy: Standard Offer Contracts, Renewable Energy Standard Offers, Renewable Energy Payments, Advanced Renewal Tariffs, Feed-in Laws, Renewable Energy Dividends, and many more! It’s getting a bit confusing.
In 2010 a study was commissioned by the New York based Rockefeller Brothers Fund to rename this policy in the United States. The plan was to come up with something meaningful that most everyone could agree to. Rockefeller’s consultants chose CLEAN Contracts—Clean, Local, Energy, Accessible, Now—Contracts.
Regardless of what they are called the most effective FIT policies or CLEAN Contracts share a few basic characteristics:
1. Grid Connection: Everyone who wants to sell the renewable energy they produce is guaranteed a connection to the electrical grid. This includes producers of electricity from solar, wind, micro-hydro, hydro, biogas, geothermal, biomass, and combined heat and power (CHP) if tethered to one of the forenamed. There is no limit on the amount of renewable energy that producers can feed into the grid and sell to the utilities.
2. Long-term Contracts: Utilities and renewable energy producers sign transparent, streamlined, long-term (15-20 year) contracts with set rates per kWh.
3. Established Rates:
- The contract rates are set according to the type, size, and location of the energy producing installation. They are determined by the producer’s actual cost of generating the electricity plus a reasonable rate of return (profit). The prices are set high enough to be an incentive to new renewable energy producers and for existing producers to expand their generating capacities.
- An independent review board, often a state or provincial regulatory authority, is established by the governing body to periodically set the prices and terms for new contracts.
Sharing the Benefits and Costs
As these policies are adopted throughout North America and renewable energy replaces the burning of fossil fuels there will be many benefits to everyone, including electricity rate payers. These benefits include:
- Increased renewable energy jobs in their region, keeping more money reinvested locally
- Less air, land and water pollution
- Improved health and lower health care costs
- Electricity independence and assurance of supply
- Long-term reduction of electricity costs
In the short term, these policies may increase costs to rate payers as renewables begin to replace fossil fuel resources where the capital costs have already been recovered.
Over time, the rapid development of renewable energy stimulated by these policies will stabilize utility costs as the price for fossil fuels continues to increase.
In Europe, Feed-in tariffs have on average added between a $1 to $2 increase per month to household electric bills. However, when fossil fuel prices have risen dramatically, as in 2008, Feed-in tariffs have saved rate payers money.